Why Did We Need A Bank Stress Test?

I found this comment in a MarketWatch article really odd. The article is about the bank stress tests.

I know, you probably don’t want to read one more word about this subject. I don’t blame you, it’s easily the most over reported non-event of the year so far. But bear with me a second.

First, the article isn’t a bad short read. It goes over all the same stuff. All the banks will pass, baseline versus worst-case scenarios, disclosure or no disclosure and nobody outside of the need to know people will hear the details (until it leaks of course). The end in which it talks about 8-K disclosure is kind of interesting, so take a quick look.

Anyway, here is what caught my eye:

Nevertheless, regulatory analysts contend that government officials will have a thorough knowledge about each bank’s capital composition, including loan portfolios and off-balance-sheet commitments, once they complete stress tests. Most of this information will be kept confidential, Hare said. Banks are expected to receive preliminary results of stress tests so they can make comments before the final results are provided.

OK, call me naive but I thought that the alphabet soup of regulators that are supposed to be on top of these guys would have known going in the capital composition, loan portfolios and off-balance-sheet commitments of these institutions. What have they been doing all of these years? I thought they regularly examined these banks. If you conducted an examination wouldn’t you know all that stuff.

If they didn’t know what was sitting there then what have they been doing all this time. More to the point, if after decades of examining these banks and evidently producing no useful information why should I believe that in a couple of months they’ve unlocked all of their secrets.

Makes you somewhat skeptical of all the talk about tougher regulation in the future, doesn’t it. test